When you use a land trust, you're opting in to a legal construct that most attorneys don't deal with regularly. This is foreign territory for many lawyers who aren't investors themselves.
Some of the practical benefits of using a land trust come from strategically employing beneficial shares. Today, we'll break down the concept of beneficial shares and what this aspect of land trusts can do for you.
You may already know that a land trust, like any other trust, requires a grantor, beneficiary, and trustee. The two roles that are most relevant here are beneficiary and trustee. If you establish a land trust, you are generally going to be the one designated as the beneficiary. This gives you control over the trust, but it is the trustee who officially holds the title for any real estate within the trust.
So while you don't officially own or hold the title to real estate as the beneficiary of a land trust, you do possess a beneficial interest. Beneficial shares can also be assigned to other parties who have a stake in the property. This is one of many unique benefits to using a land trust: multiple owners or investors can easily divide a property for the purposes of administration, management, or even tax concerns.
Beneficial shares can be issued in a variety of contexts. One common context you might see them used in is estate planning.
Beneficial shares offer some legal protections. Real estate investors aren't the only ones who care about location, location, location. The courts do, too. If a beneficial share becomes the subject of a lawsuit or must otherwise be handled in court, the law requires that this happen in the owner's specific location. In legalese, we call that your "jurisdiction."
Land trusts complicate the ordinarily simple process of determining jurisdiction. They make for an effective asset protection tool because they further the goal of making you extremely inconvenient or even pointless to sue. You can further stack the odds in your favor by forming an entity, such as a Series LLC, in a state that tends to favor businesses and investors. We've discussed which states provide the best Series LLC options on this blog before.
That said, owning a beneficial share alone isn't a "get-out-of-jail-free" card for irresponsible behavior. These shares can still be collected on by creditors, or raised in bankruptcy proceedings. The best way to avoid this fate is to manage your debt intelligently, and stay away from money pits and other unnecessarily risky investments.
The experts at Royal Legal Solutions are happy to assist you with any of your land trust needs. This includes, of course, answering any questions you may have about the legal or operational aspects of running a land trust. Feel free to continue the conversation in the comments section below. Better yet, beef up your investment and asset protection game: schedule your land trust consultation today.
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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